Valuation
Price-to-Sales ratio
P/S
What it is
The P/S ratio compares market cap to annual revenue. A P/S of 5 means you're paying five times yearly revenue to buy the company.
How to read it
P/S is useful when P/E isn't calculable — for a young, unprofitable, or fast-growing company. It reveals the premium you're paying per dollar of revenue. A high P/S suggests investors expect either strong growth or significant margin expansion.
Common reference points
- Often undervalued< 1
- Moderate valuation1 – 3
- Expensive (growth or margins expected)3 – 10
- Very expensive (hyper-growth)> 10
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
P/S completely ignores profitability. A company with a low P/S can be structurally unprofitable. Always cross-check against margins and growth.
Other measures — Valuation
Educational content. Polaris is not a registered investment adviser and makes no recommendation.